Thread by @RickRieder

Though it hardly needs to be said, there are few historical precedents for us to look to that are truly comparable to recent #Fed policy moves. The 2008/09 #GFC is an obvious analogue, but the pace and extent of #policy moves is even eclipsing that.

Another potential point of reference is the Second World War when, following Pearl Harbor, the @federalreserve pledged that it would be: “prepared to use its powers to assure at all times an ample supply of funds for financing the war effort.”

That stance, in effect, left the @federalreserve’s System Open Market Account’s (#SOMA) size at the mercy of #Congress and the Administration, which is a clear example of the #Fed doing “whatever it takes” to prevent unwanted increases in #yields to fund #fiscal crisis response.

To #finance the war effort, the #Fed pegged the existing structure of #yields on shorter-term securities and enforced a ceiling of 2.5% on the yield for long-term government #bonds. The short-end of the yield curve, the 90-day Treasury bill, was capped at 3/8 percent.

By mid-1942, this resulted in the @USTreasury yield curve being fixed for the duration of the war, anchored at the front end with a 0.375% bill rate and at the long end with a 2.5% long-bond rate, levels that look almost generous today!

As a result of these arrangements, the size of the #SOMA increased from $2.25 billion, at the end of 1941, to $24.26 billion, by the end of 1945, or roughly from 2% of nominal #GDP to more than 10% of nominal GDP.

Yet our point of departure for the #Fed’s balance sheet is closer to 21.5% of nominal GDP now, suggesting that we’ve headed into uncharted waters policy wise. When combined with potential #fiscal policy, the mix of economic support being delivered today is truly extraordinary.